- The Yangon Stock Exchange is scheduled to open in
2015. But it’s unclear what will happen to the
public companies whose shares are traded on
Myanmar’s unregulated OTC equities
- The country also lacks a securities law and a
dedicated regulator. Market participants, including those
trading on the OTC equities market, look forward to more
- It is also unclear whether foreign investors will
be allowed to trade on the Yangon Stock Exchange when it
opens. If they are not permitted to purchase shares, market
participants expect that more companies will look to list in
Although the Yangon Stock Exchange (YSE) is not scheduled to
open until 2015, Myanmar’s nascent
over-the-counter (OTC) equities market has recently drawn
foreign investor interest.
A few companies, such as Yoma Strategic Holdings, have
successfully listed on the Singapore Exchange via reverse
takeover. However that has proved to be a difficult route for
Myanmar corporates due to US sanctions as well as human rights
It is otherwise impossible for foreign investors to tap
Myanmar companies in the capital markets, as the country lacks
an official stock exchange. However under its Companies Law,
companies can become public and sell shares OTC. But this has
so far been an unregulated market – Myanmar lacks a
securities regulator or a securities law.
Jeremy Rathjen, vice president of research at Myanmar
research, consulting and capital markets firm Thura Swiss,
explained that there are two companies listed on the Myanmar
Securities Exchange Centre, but most public companies in
Myanmar aren’t listed. Instead, public companies
exist due to a provision in the Companies Act, and their shares
are traded OTC.
Therefore, there is no formal price discovery, and all
shares must be traded via brokers. The OTC market is also
Further, Rathjen told IFLR that the OTC market has
virtually no regulation: each company has its own rules, rather
than an overreaching body.
"We expect that to be fixed, but if the OTC market is
permitted to continue operations, we’re not sure
what regulations will be in place for the market," he said. "We
would welcome legal infrastructure to reduce risk."
Paul Landless, a counsel at Clifford Chance, agreed that the
OTC market lacks transparency. A broad and obvious statement is
that it’s difficult to do due diligence on these
companies, he said.
He added, "we don’t know what kind of financing
support they’re getting in terms of bank debt, as
well as what their assets are to get close to understanding
Rathjen agreed. ThuraSwiss released its first
research report on June 14, focusing on First Myanmar
Investment – the sister to Singapore-listed Yoma
People know very little about public companies –
even in the local market – and it’s
difficult to make informed decisions, he said. Investors are
unlikely to put money into Myanmar if they don’t
have information, and the companies don’t benefit
either: understanding the company allows investors to make
The future of public companies
But it is unclear whether a regulator would approve of the
existence of an essentially unregulated OTC market alongside
the nascent Yangon Stock Exchange – especially since
many of the public companies trading on the OTC markets are
among the largest in Myanmar.
It is believed that companies listing on the Yangon Stock
Exchange will encounter strict regulatory scrutiny to ensure
that investors are comfortable with the integrity of
Myanmar’s capital markets. The first listings will
include some of the largest conglomerates in Myanmar –
many of which are already public companies.
Landless noted that a groundswell of banking relationships
is already being formed with these public companies. Once they
go forward in a formal public listing, there will be additional
requirements from a regulatory standpoint to make clear that
they are test cases.
But the YSE will have stringent listing requirements.
Rathjen said that companies will have to be profitable within
the two years that lead up to the listing: if the YSE comes
online in 2015 as planned, then companies must be profitable
now in order to be qualified to list immediately.
Further, because there is no securities regulator in place,
it is unclear what will happen to these large public
conglomerates unable to list because they cannot comply with
the listing rules.
Before the YSE’s 2015
Although it has been reported
that the YSE is on schedule to open by 2015, practitioners are
not entirely certain that all the infrastructure necessary
– such as a securities law, a regulator and market
regulations – will be available by 2015. The Tokyo
Stock Exchange and Japan’s
Daiwa Securities Group are working with the Myanmar
government to bring its economy and regulations in line with
But DFDL’s William Greenlee said that 2015 is a
rather ambitious timeline, especially considering there is no
securities law in place.
The first step is the securities law, he added. But the
second should likely be the formation of an independent
ministerial-level Myanmar governmental body implementing the
securities law and overseeing the future stock exchange and
finally the creation of the stock market itself.
Greenlee, formerly based in Laos, noted that the situation
in Myanmar is not unlike that of Laos, which has the newest
stock exchange in Asia.
"Some might argue that the Lao exchange was opened
prematurely because it was opened without promulgating its
securities law first," he said. "The government had only issued
a few notices related to basic regulations."
Instead, he hoped that Myanmar will go down a different
route and promulgate a more evolved regulatory regime before
allowing the exchange to actively list companies and trade.
But in a country dominated by tycoon-run conglomerates,
Landless encouraged a focus on shareholder rights. New
regulations should include a clarification of shareholder
rights, particularly minority shareholder rights.
"They should include understanding how directors are held
for account – noting the classic Western disconnect
between owners and managers – and how that balance is
being set and disclosed," he added.
Listing in Singapore?
In the meantime, Myanmar conglomerates are able to list in
Singapore via reverse takeovers – Yoma Strategic
Holdings has been listed since 2006.
But this model is risky:
the SGX’s rejection of Max Myanmar’s
application to merge with Singapore-listed Aussino
highlighted sanctions risk for foreign investors. The SGX noted
concerns about owner U Zaw Zaw’s placement on the
US’ sanctions list, the company’s
alleged human rights abuses and a tax investigation by
authorities in Myanmar.
Market participants agreed that Myanmar conglomerates may
not be prepared for the requirements of listing on an
international exchange. But that may change quickly if foreign
investors are unable to invest on the YSE.
Although a few domestic firms are looking at RTOs in
Singapore, it may be easier to list on a domestic exchange or
to complete a dual listing following the establishment of the
YSE, Rathjen said.
"If foreign investors are able to purchase shares of Myanmar
companies on the YSE, that drastically lessens the advantage
for Singapore RTOs," he said. "But if foreign investors are
unable to take shares in local companies, companies will look
Landless agreed, saying that companies will look to the SGX
as a key to global recognition and global standards for analyst
coverage and market access.
But, he added, Myanmar companies will rely on bilateral
investors and strategic relationships.
"There’s no real need to enter the public
universe from an investment financing perspective," he said.
"They have sufficient relationships so that they can take their
time before entering the exchange-listed environment."
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